UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number: 0-10147
APPLIED EARTH TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3555738
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3335 South 900 East, Suite 230, Salt Lake City, Utah 84106
- ---------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(801) 467-5339
-------------------------------------------------
Registrant's telephone number, including area code
Not Applicable
- ------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class Outstanding as of September 30, 1996
-------------------------- ------------------------------------
Common Stock, No Par Value 15,998,354
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the financial position, results of operations, cash flows, and stockholders'
equity in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of September 30, 1996, and
the related audited balance sheet of the Company as of December 31, 1995, the
unaudited related statements of operations and cash flows for the three and
nine month periods ended September 30, 1996 and 1995, and the unaudited
statement of stockholders' equity for the three month periods ended September
30, 1995 and 1996, are attached hereto and incorporated herein by this
reference.
Operating results for the quarter ended September 30, 1996, are not
necessarily indicative of the results that can be expected for the year ending
December 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Applied Earth Technologies, Inc. (the "Company") (formerly San Diego
Bancorp), was incorporated under the laws of the State of California on May
19, 1979, for the primary purpose of acting as a bank holding corporation for
several subsidiaries, and the principal business was in the industrial loan
market conducted through a subsidiary named El Camino Thrift and Loan
Association. During several years preceding 1986, the Company incurred
substantial losses and during 1986 management decided to discontinue all
operating activities, and liquidate the remaining assets and liabilities. The
Company became a "shell" corporation by December 31, 1986, and had no material
operations until September, 1993. On September 21, 1993, the Company acquired
100% of the outstanding common stock of Enviro-Guard Corporation (a
corporation incorporated in the State of Utah on May 30, 1991) from Enviro-Guard
Holding Corporation (a corporation incorporated in the State of Colorado
on June 10, 1987). This transaction was accounted for as a reverse
acquisition whereby the acquired corporation (Enviro-Guard Corporation) gained
controlling stockholder interest in the acquiring corporation (the Company).
The financial statements of Enviro-Guard Corporation are presented on a
continuous basis since inception in May of 1991.
Enviro-Guard Corporation has developed a line of organically-based
insecticide products made from natural compounds with the objective of
achieving environmentally-friendly, yet effective results. In August of 1992,
Enviro-Guard acquired 100% of the outstanding common stock of Diatect
International, Inc. ("Diatect"), (incorporated in the State of Kansas in
1989). Diatect has developed and owns the rights to three EPA registered
insecticides. Also in August of 1992, Enviro-Guard acquired 100% of the
outstanding common stock of D.S.D., Inc. (incorporated in the State of Kansas
in 1982). The principal business activity of D.S.D., Inc., is the
manufacturing and sale of cattle dusters and mineral feeders as well as the
blending and sale of various agricultural related insecticides.
On December 18, 1992, Enviro-Guard Corporation completed negotiations to
acquire 90.14% of the outstanding common stock (891,250 shares) of White
Mountain Mining and Manufacturing, Inc. ("White Mountain") (an Idaho
Corporation). White Mountain owns 83 unpatented BLM mining claims located in
Malheur County, Oregon. The purpose of this acquisition of the mining
property is for Enviro-Guard Corporation to have a source of diatomite, which
is an important organic ingredient for its environmentally-safe insecticides.
On August 22, 1996, the Company changed its name from San Diego Bancorp
to Applied Earth Technologies, Inc. to more accurately reflect the Company's
business operations and to eliminate confusion as to the Company's business
that was associated with the Company's prior name.
Management Changes
On September 18, 1996, Dennis P. Nielsen resigned as Secretary of the
Company and as a member of the board of directors. Mr. Dale Christiansen, CFO
and Treasurer of the Company, was elected as Secretary of the Company. Mr.
Nielsen's board position will remain vacant until the Annual Stockholders
Meeting expected to be held during the fourth quarter of 1996.
Ability of the Company to Continue as a Going Concern
For the nine-month period ended September 30, 1996, the Company has
incurred a consolidated net loss of $528,193. In addition, at September 30,
1996, current liabilities exceeded current assets by $1,482,306.
During the first nine months of 1996, the Company converted $506,751 in
accrued salaries, marketing expenses and other liabilities to equity by
offering 3,863,468 shares of common stock. In the future, management
anticipates the conversion of an additional $500,000 in debt (principally
notes payable and accruals) to equity during fiscal years 1996 and 1997. The
Company also believes that without additional conversions of debt to equity
and restructuring the payment terms of short-term debt, substantial doubt
remains as to the Company's ability to meet its current obligations and
continue in business. The Company has taken steps to address its insolvency
problems by working with its creditors to keep them informed of the Company's
progress in meeting outstanding liabilities. For the most part, the Company's
creditors have been patient, waiting for payment at a future date.
The Company must meet monthly operational expenses of approximately
$85,000. Currently, the Company has average revenues from operations of
approximately $75,000 which creates an operational shortfall of approximately
$10,000 per month. However, management believes that additional revenue
generated by increased marketing efforts will result in increased sales of the
Company's products and ultimately alleviate a substantial portion of the
shortfall. Until those revenues eventuate, the Company will be dependent upon
outside funding to meet operating requirements.
The Company is attempting to obtain additional working capital from
several sources, including investment banking firms, private investors and
state funding agencies interested in assisting growing companies within the
agri-environmental sector. Management intends to seek equity financing
through the sale of the Company's securities.
Results from Operations
During the fiscal quarter ended September 30, 1996, the Company had
revenues of $90,331, cost of sales of $43,998, operating expenses of $337,771,
other income of $4,559 and an income tax benefit of $39,286. These yielded a
net loss of $247,599, compared to a net loss of $145,856 for the same period
of 1995. The substantial portion of the third quarter 1996 loss was due to
three factors: the seasonal downturn in agriculture related product sales,
higher professional fees ($99,218) incurred in bringing the Company back into
SEC compliance, and depreciation and amortization expense ($62,710). The
Company does not expect professional fees in future reporting periods to be as
high as those incurred during this reporting period. The Company believes that
many of the operating and administrative expenses associated with the third
quarter loss were due, in part, to insufficient cash flow and the illiquid
nature of the Company's non-current assets.
For the nine month period ended September 30, 1996, the company had
consolidated revenues of $543,129. The net loss for the nine-month period
totaled $528,193.
Management is hopeful that once its products are in the marketplace, the
losses from operations the Company currently suffers will be alleviated by
increased sales revenue and profitability. Currently, the Company has not had
the working capital to effectively market its products.
Liquidity and Capital Resources
The Company has a severe working capital deficit. As of September 30,
1996, the Company's working capital deficit totaled $1,482,306 compared with
$1,502,455 at December 31, 1995. The Company has current liabilities totaling
$1,641,829 and no long term debt at September 30, 1996, a decrease of $133,148
from the end of the prior quarter. At the end of 1995, current liabilities
and long term debt were $1,688,297 and $200,000, respectively. The Company's
working capital deficit continues to have a direct correlation with the
Company's inability to expand and market its products effectively.
If the Company is unable to obtain some funds in the near future, it
will not be able to continue in business. The Company, therefore, continues
to seek working capital from several sources, including equity markets and
private investors. There is no assurance, however, that these efforts will be
successful. The Company does feel that it will increase revenues from
operations as it moves from the development stage of its products, which has
included lengthy and costly time in obtaining EPA approval. With the
Company's products in the marketplace and with adequate financial support, the
Company anticipates revenues to offset on-gong expenses. The Company is
uncertain, however, as to whether there will be sufficient revenues to cover
prior years' obligations.
As previously stated, the Company's lack of cash has affected its
ability to effectively market Enviro-Guard's products. The marketing strategy
will require funds to be fully effect. Accordingly, although the Company
anticipates more revenue from its products then it has received in the past,
it will not be as profitable as it could be with additional funding for full
implementation of its marketing and promotional plans.
Subsequent Events
On October 24, 1996, the Company entered into a letter of commitment
with Security National Land and Mortgage Corporation for a commercial $3
million loan. The proceeds of the loan are to be used for product and
inventory development, marketing, plant facility development, repayment of
short term notes and operating capital. The loan is to close approximately 30
days from the date of the letter of commitment.
FINANCIAL STATEMENTS
APPLIED EARTH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION> (Unaudited) December 31,
Sept. 30, 1996 1995
-------------- --------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,368 64,970
Accounts receivable 73,492 25,036
Inventories 82,663 95,836
------------ ------------
Total Current Assets 159,523 185,842
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Building 127,119 127,119
Mining property 4,318,346 4,370,390
Equipment 260,277 261,185
------------ ------------
Total Property, Plant and Equipment 4,705,742 4,758,694
Less accumulated depreciation 207,912 195,672
------------ ------------
Net Property, Plant and Equipment 4,497,830 4,563,022
------------ ------------
OTHER ASSETS
Investment in EPA labels, Net of amortization 3,288,887 3,509,807
Notes receivable 240,472 250,000
Deposits 1,117 967
Other assets 11,429 57,200
------------ ------------
Total Other Assets 3,541,905 3,817,974
------------ ------------
TOTAL ASSETS $ 8,199,258 $ 8,566,838
============ ============
</TABLE>
APPLIED EARTH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION> (Unaudited) December 31,
Sept. 30, 1996 1995
-------------- --------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 261,009 $ 242,714
Interest payable 209,657 203,762
Income taxes payable 20,489 20,487
Other accrued liabilities 52,908 26,298
Notes payable 1,097,766 665,514
Current portion of long-term debt - 529,522
----------- -----------
Total Current Liabilities 1,641,829 1,688,297
----------- -----------
LONG-TERM LIABILITIES
Long-Term debt, less current portion - 200,000
----------- -----------
DEFERRED TAX LIABILITY 1,042,806 1,238,851
----------- -----------
COMMITMENTS - -
MINORITY INTEREST 339,397 339,397
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares
authorized; 15,998,354 and 10,280,408 shares
issued and outstanding, respectively 9,703,458 9,059,150
Common stock subscribed 335,564 376,746
Accumulated deficit (4,863,796) (4,335,603)
----------- -----------
Total Stockholder's Equity 5,175,226 5,100,293
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,199,258 $ 8,566,838
=========== ===========
</TABLE>
APPLIED EARTH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 90,331 $ 126,426 $ 543,129 $ 498,812
COST OF SALES 43,998 87,501 264,631 260,739
---------- ---------- ---------- ----------
GROSS PROFIT 46,333 38,925 278,498 238,073
---------- ---------- ---------- ----------
OPERATING EXPENSES
Salaries, wages and benefits 59,850 67,761 180,887 214,758
Consulting 42,680 1,900 98,486 43,059
Travel 4,048 8,870 25,213 32,460
Rent 2,734 3,800 15,412 17,341
Interest 33,178 12,810 99,654 45,052
Utilities 3,500 3,100 10,871 9,122
Depreciation and amortization 62,710 60,754 188,118 184,131
Business Development and Promotion 8,781 3,424 33,048 90,277
Office 6,252 8,088 18,302 26,411
Taxes and licenses 8,550 16,882 13,656 21,325
Professional fees 99,218 4,196 218,651 119,753
Repairs and Maintenance 1,000 2,848 2,033 7,338
Miscellaneous 5,276 15,901 17,085 47,256
--------- ---------- ---------- ----------
Total Operating Expenses 337,777 210,334 921,416 858,283
--------- ---------- ---------- ----------
OPERATING (LOSS) (291,444) (171,409) (642,918) (620,210)
OTHER INCOME (LOSS)
Gain (loss) on sale of property - 1,473 - (107,859)
Interest/Income 3,908 4,062 11,880 12,526
Royalties 650 - 1,963 -
Miscellaneous 1 6,358 7,672 9,577
--------- ---------- ---------- ----------
Total Other Income (Loss) 4,559 11,893 21,515 (85,756)
--------- ---------- ---------- ----------
(LOSS) BEFORE INCOME TAX BENEFIT (286,885) (159,516) (621,403) (705,966)
INCOME TAX BENEFIT 39,286 13,660 93,210 100,889
--------- ---------- ---------- ----------
NET (LOSS) $(247,599) $ (145,856) $ (528,193) $ (605,077)
========= ========== ========== ==========
NET (LOSS) PER SHARE (Primary) $ (.017) $ (.014) $ (.035) $ (.059)
========= ========== ========== =========
</TABLE>
APPLIED EARTH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Common Stock Accumulated
Shares Amount Subscribed Deficit Total
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances as of June 30,
1995 10,280,408 $ 8,925,950 $ 83,500 $(3,478,342) $ 5,531,108
Common stock subscribed for
accrued salaries, wages
and marketing expenses - - 145,819 - 145,819
Net (Loss) - - - (145,856) (145,856)
---------- ---------- ---------- ---------- ----------
Balances as of September
30, 1995 10,280,408 $ 8,925,950 229,319 (3,624,198) $ 5,531,071
========== =========== ========== ========== ==========
Balances as of June 30,
1996 14,135,164 $ 9,422,396 $ 308,039 $(4,616,197) $ 5,114,238
Conversion of common stock
subscribed 544,650 136,213 (136,213) - -
Common stock issued for
services at $.25 per share 187,752 46,938 - - 46,938
Common stock issued for
consulting and debt
reduction at $.06 per share 1,130,788 97,911 - - 97,911
Common stock subscribed for
debt conversion - - 163,738 - 163,738
Net (Loss) - - - (247,599) (247,599)
---------- ---------- ---------- ----------- ----------
Balances as of September
30, 1996 15,998,354 $9,703,458 $ 335,564 $(4,863,796) $ 5,175,226
========== =========== ========== ========== ==========
</TABLE>
APPLIED EARTH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION> FOR THE FOR THE
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (247,599) $ (145,856) $(528,193) $(605,076)
Add items not requiring
the use of cash:
Depreciation, amortization and
non-cash expenses 62,710 60,754 181,370 160,580
(Decrease) increase in accounts
receivable 42,953 25,408 (48,456) (65,774)
(Increase) decrease in advances - - - (120)
(Increase) in inventories 11,852 (7,509) 13,173 (27,509)
(Increase) decrease in deposits - (200) (150) 2,939
(Increase) decrease in prepaid
expenses - - - (6,500)
Increase (decrease) in accounts
payable (25,749) (9,989) 18,295 783
(Decrease) in deferred tax
liability (72,513) (48,465) (196,045) (205,305)
Increase (decrease) in interest
payable (31,701) 12,788 5,895 2,404
Increase (decrease) in other
accrued liabilities 7,873 (83,478) 26,612 24,117
---------- ---------- ---------- ---------
NET CASH FLOWS USED FROM
OPERATING ACTIVITIES (252,174) (196,547) (527,499) (719,461)
---------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Reduction in property,
plant and equipment 16,968 17,536 52,952 339,711
Decrease in other assets (6,935) - 45,765 -
Decrease in notes receivable 3,227 - 9,528 150
Reduction of intangibles 17,266 17,266 51,796 51,798
---------- ---------- ---------- ---------
NET CASH FLOWS PROVIDED (USED)
FROM INVESTING ACTIVITIES 30,526 34,802 160,041 391,659
---------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 308,587 145,819 603,126 407,679
Net proceeds (reductions) from
notes payable (83,106) 10,000 117,730 140,343
Reduction in long term debt - - (415,000) (208,038)
---------- ---------- ---------- ---------
NET CASH FLOWS PROVIDED (USED) FROM
FINANCING ACTIVITIES 225,481 155,819 305,856 339,984
---------- ---------- ---------- ---------
TOTAL INCREASE (DECREASE) IN CASH 3,833 (5,926) (61,602) 12,182
CASH AT BEGINNING OF PERIOD (465) 16,261 64,970 (1,847)
---------- ---------- ---------- ---------
CASH AT END OF PERIOD $ 3,368 $ 10,335 $ 3,368 $ 10,335
========== ========== ========== =========
</TABLE>
APPLIED EARTH TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
The condensed consolidated financial statements of Applied Earth
Technologies, Inc. included herein have been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Although, certain information normally included in financial statements
prepared in accordance with generally accepted accounting principles has been
condensed or omitted, Applied Earth Technologies, Inc. believes that the
disclosures are adequate to make the information presented not misleading.
The condensed consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in Applied Earth
Technologies, Inc.'s annual report on Form 10-KSB for the fiscal year ended
December 31, 1996.
The condensed consolidated financial statements included herein reflect
all normal recurring adjustments that, in the opinion of management, are
necessary for a fair representation. The results for interim periods are not
necessarily indicative of trends or of results to be expected for a full year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Applied Earth Technologies, Inc.'s annual report on Form 10-KSB for
the fiscal year ended December 31, 1995.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Financial Data Schedule, See Exhibit 27
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED EARTH TECHNOLOGIES, INC.
(Registrant)
Dated: November 19, 1996
By /s/ Dale H Christiansen
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000319124
<NAME> APPLIED EARTH TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,368
<SECURITIES> 0
<RECEIVABLES> 73,492
<ALLOWANCES> 0
<INVENTORY> 82,663
<CURRENT-ASSETS> 159,523
<PP&E> 4,705,742
<DEPRECIATION> 207,912
<TOTAL-ASSETS> 8,199,258
<CURRENT-LIABILITIES> 1,641,829
<BONDS> 0
0
0
<COMMON> 9,703,458
<OTHER-SE> (4,528,232)
<TOTAL-LIABILITY-AND-EQUITY> 8,199,258
<SALES> 543,129
<TOTAL-REVENUES> 564,644
<CGS> 264,631
<TOTAL-COSTS> 821,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,654
<INCOME-PRETAX> (621,403)
<INCOME-TAX> (93,210)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (528,193)
<EPS-PRIMARY> (0.035)
<EPS-DILUTED> (0.035)
</TABLE>
